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SET is safer than it was years ago, but speculators still have a powerful presence.
Nuntawun Polkuamdee
How much worse can it get? Down 45% since January, the Stock Exchange of Thailand is now at a level not seen since 2003. Nearly three trillion baht in value has been wiped off the market this year, thanks to the self-inflicted injuries wrought by Thai politics and the recent hurricane that has swept through the global economy.
Phatra Securities, in a report published last week, notes that in the past decade there have been eight declines of 20% or more, including a 46% drop from August 1997 to January 1998 and 47% when the dot.com bubble burst in 2000.
Of course, the exchange has yet to mirror the pre-crisis slide - from nearly 1,700 points at the end of 1993, the index fell to 1,200 in 1995 and reached a floor of 214.53 in August 1998.
One of the enduring images of the crisis years was the picture of distraught investor Vivat Srisammacheep with a gun to his chin at the SET's old offices at the Sindhorn Building on Wireless Road.
The boom years of the 1990s helped lure tens of thousands of retail investors into the market with the promise of quick riches. The subsequent collapse equally led tens of thousands to lose their fortunes and confidence in equities as an asset class.
We are unlikely to see a repeat exodus today, even with the rapid declines of the index over the past month. Perhaps today's investors are more jaded and have learned about the vagaries of the market, thanks to bitter experience as well as efforts to educate the retail investor base about the basic principle of risk and reward.
As well, a sizeable portion of the investor base today truly considers stocks a long-term investment, with more emphasis given on corporate fundamentals and dividend performance than day-to-day price movements.
But even after three decades of capital market development, the SET continues to be haven for speculators.
On any day, the most-active chart reveals a number of common names, stocks quoted at less than one baht each with a history of highly volatile earnings performance and share price movements.
On any given day, investor cliques can join hands, even sometimes with company management and major shareholders, to push share prices one way or the other.
For these investors, fundamentals are meaningless - indeed, the larger and more prominent the company, the less attractive it is for speculators, due to the greater difficulty in manipulating prices for large-cap stocks.
While corporate CFOs and fundamental investors may take the presence of an institutional fund as a vote of confidence in the company, such funds represent an obstacle to speculators wanting to stay out of the eyes of the regulators.
Complicit major shareholders are another prerequisite - a speculator seeking to manipulate shares upwards, for instance, could see his work undone if a major shareholder decides to dump his holdings prematurely once prices rise above fundamental valuations.
Regulators and brokers agree that price manipulation today has advanced considerably over the past, as speculators seek to stay ahead of advances in market surveillance and enforcement functions.
A leading speculator today rarely trades from his own account - instead, dozens of associates are used as nominees to execute buy or sell orders to generate volume and churn the stock.
Shareholder lists for firms such as IEC, Bliss-Tel or Live - all stocks with low share prices but massive trading turnover - show common names, investor groups and price trends.
Turnover and prices might rise thanks to positive "news", whether it be an announcement of a share split, warrant issue or possible mergers-and-acquisitions deal.
The goal of a speculator is to solicit enough interest so that others join in to inadvertently push up prices, up to the point where they can exit at a handsome profit and before prices inevitably crash back to more sane valuations. At that point, the cycle might then start anew.
Forced selling by margin investors can magnify share movements. Take LIVE, for instance. The media company saw its share price nosedive from 4.96 baht per share on Oct 1 to just 0.52 baht as of Friday, a staggering decline that included five straight days where prices fell to the 30% floor limit as investors bailed out en masse once word spread that the party was over.
On Oct 10, shares slipped under one baht each, leading to the 30% limit being waived - the stock fell 76% the next day, followed by two days of gains of 100% and 71% respectively.
The few dozen key speculators who lead trade of these small stocks control hundreds of millions, even billions, of baht in capital in play. Many boast close ties with politicians and business leaders, and occasionally join together in impromptu coalitions to play a given target. But for the most part, "targets" are split and separated by the players to avoid conflicts under an informal code that guides these underground movers of the market.
Regulators, meanwhile, appear to have shifted to a stance of caveat emptor - let the buyer beware - rather than the more preemptive approach taken in the past. In past years, the SET would publicly single out certain stocks as suspect, and impose margin loan and net settlement bans to curb volatility.
But cries of interference from brokers and investors about market interference have since led the exchange to take a more passive, formulaic approach. Shares with high turnover and valuations are automatically subject to trading restrictions and put on a weekly turnover list, disclosed to the public at the SEC website at http://www.sec.or.th.
Yet speculators say trading restrictions often come too late to be of any use in curbing manipulation, and actually hurt the unwitting small investors who are trapped with the shares after the large players have long exited.
"It's a big game. We know where the real capital is, and when it comes and goes," said one major speculator with a shrug.
"Small investors who are out of the loop are the ones who are at risk. Big fish eat the small fish. That's life."
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